Basics of Structured Transactions - November 2021 - Capital Markets
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Basics of Structured Transactions November 2021
Basics of Supers and Megas
Supers
Fannie Mae Supers™ (Supers) are single-class, pass-through, TBA-eligible securities in which the underlying collateral
consists of groups of existing UMBS and/or Supers. The securities that back Supers may be issued and guaranteed by
either Fannie Mae or Freddie Mac. The cash flows from the underlying UMBS and/or Supers provide the cash flows for the
Supers pool. As of June 3, 2019, all Fannie Mae Megas® (Megas) with TBA prefixes, regardless of issue date, are Supers.
Fannie Mae Supers enable investors to accumulate pieces of similar existing mortgage-backed securities to form a larger
security with its own unique characteristics. Investors can consolidate small or paid-down pools in a Supers to help
reduce administrative costs or form a Supers with certain characteristics, such as enhanced geographical diversity.
Megas
Fannie Mae Megas are single-class, pass-through, non-TBA-eligible securities in which the underlying collateral are
groups of existing Fannie Mae non-TBA MBS and/or Fannie Mae Megas. The securities that back a Megas are issued and
guaranteed by Fannie Mae. The cash flows from the underlying MBS and/or Megas provide the cash flows for the Megas
pool. Unlike Supers, Megas can only be backed by non-TBA Fannie Mae-only issued collateral (except for JU Megas).
As of June 3, 2019, all Megas with TBA prefixes, regardless of issue date, are Supers.
Similar to Supers, Megas enable investors to accumulate pieces of similar existing mortgage-backed securities to form
a larger security with its own unique characteristics. Investors can consolidate small or paid-down pools in a Megas to
help reduce administrative costs or form a Megas with certain characteristics.
Implementation of Single Security
Under the direction of our regulator and conservator, the Federal Housing Finance Agency (FHFA), Fannie Mae
and Freddie Mac worked together to create TBA-eligible MBS issued and guaranteed by either Fannie Mae or
Freddie Mac and backed by 30-, 20-, 15-, and 10-year fixed-rate single-family mortgages. This new MBS is termed
Uniform Mortgage-Backed Security, or UMBS™. The Single Security initiative allows Fannie Mae UMBS and
Freddie Mac UMBS to be fungible for deliveries into a single TBA market. In this contract, the maturity, coupon,
face value, price, and settlement date of an MBS are known, but the issuer (Fannie Mae or Freddie Mac), the
actual pool number, and the unique security identifier (CUSIP) are not yet known.
Single-class re-securitizations are called Supers. Supers permit the commingling of Fannie Mae UMBS and
Freddie Mac UMBS so the enterprise that issues, or wraps, the re-securitization is the guarantor. The non-TBA-
eligible product is referred to as Megas for Fannie Mae and Giants for Freddie Mac.
Basics of Structured Transactions 2Benefit to Investors
• Smaller securities are bucketed together in order to build a larger pool and create a more liquid security.
• The larger product size creates operational and accounting efficiencies.
• Investors can create a pool with desired characteristics such as geographic diversity or targeted
weighted averages.
• For Supers, collateral can be Freddie Mac UMBS, Fannie Mae UMBS, or both, providing investors
with more flexibility.
Types of Backing Collateral
• Fixed-rate UMBS-backed Supers and MBS-backed Principal & Interest (P&I)
Megas require that the underlying securities have
the same pool prefix1 and pass-through rate.
• Supers are backed by UMBS and can be
UMBS
commingled with Freddie- and Fannie-issued
UMBS. Both UMBS and previously issued Supers
can be delivered into the same Supers.
• Megas are backed by Fannie Mae-issued MBS, UMBS Supers
Megas previously issued by Fannie Mae, or
both. ARM MBS, REMIC, and Multifamily MBS-
backed Megas may not be commingled with
other types of collateral. UMBS
• ARM MBS-backed Megas require that the
underlying securities have the same subtype.
Some ARM pool prefixes, such as GA, LA, PA, S1,
and S2, may not be commingled in a Megas pool.
• Real Estate Mortgage Investment Conduit
MBS
(REMIC)-backed Megas are formed when pass-
through, floater/inverse classes or last cash flow
sequential REMIC classes are used as collateral.
• Multifamily MBS-backed Megas require that MBS Megas
the underlying securities have the same prefix
and that the pass-through rates fit within a
certain range.
MBS
1
See “prefix glosssary” under Resources.
Basics of Structured Transactions 3What collateral is eligible?
Eligible collateral for Supers Ineligible collateral for Supers
Supers can include any combination of the collateral The Enterprises are maintaining separate programs for the
below and be issued by either enterprise. collateral below.
Legacy Fannie Mae- issued Non-TBA-
Fannie Mae- TBA- 55-day
non-TBA-eligible eligible MBS
issued 55-day eligible Megas
55-day securities & Megas
TBA-eligible MBS
securities
UMBS Supers Non-TBA-
(either (either 55-day
eligible MBS Giant MBS
enterprise) enterprise) Freddie Mac- & Megas
Freddie Mac- issued non-TBA-
issued 55-day eligible 55-day
TBA-eligible Mirror TBA-
and unexchanged
securities Securities eligible 45- 45-day
45-day securities day PCs & Giant PC
(UMBS)
Giants
Single-family multidealer Supers and Megas
Allows dealers and investors to exchange collateral for one shared security
• Round-lot Supers/Megas are larger pools of specific coupons and vintages, which are designed to respond to the
market’s desire for large homogenous pools and increased liquidity. If the underlying collateral is a TBA-eligible
UMBS, the resulting product will be a Supers. If the underlying collateral is not TBA-eligible, the resulting product
will be a Megas.
• Odd-lot securities allow market participants to aggregate odd-lot pieces for enhanced liquidity and
efficiency. The product must meet current pooling requirements, and each piece must have a current face
amount of $500,000 or less. We encourage dealers to contact us proactively if they are interested in creating
a specific odd-lot security.
Single-family weighted average Megas (JU prefix)
JU is a prefix that allows for the creation of weighted-average fixed-rate Megas backed by Fannie Mae MBS, UMBS, or
previously issued Megas and Supers. This excludes the following collateral types:
• Non-Fannie Mae collateral
• ARMs
• Multifamily
Unlike other fixed-rate, single-family Supers or Megas, the interest rates, maturity dates, and prefixes on the underlying
collateral may vary. This product was created in response to market interest in having the ability to commingle prefixes
and coupons. Only prefixes supporting single-family, fixed-rate pools are eligible to collateralize JU Megas.
Basics of Structured Transactions 4Basics of REMICs
A Real Estate Mortgage Investment Conduit (REMIC) is a type of multiclass mortgage-related security in which interest
and principal payments from mortgages are structured into separately traded securities. REMICs further enhance the
mortgage securities market by customizing cash flows for investors and thereby increasing demand for MBS.
Collateral can include:
• Single-family or multifamily MBS
• UMBS REMIC
COLLATERAL
• Supers and Megas Trust
• REMIC (for REMIC-backed securities)
CLASS
• Stripped MBS A
• Whole loans
CLASS
B
In a REMIC, the cash flow from the underlying mortgage-
related collateral is directed to several classes, wherein CLASS
each class may have a different pass-through rate, average C
life, prepayment sensitivity, and final maturity from other
classes in the same REMIC. Market participants can invest Principal payments
Interest payments
in a class that satisfies their investment and portfolio
needs. Classes are distinguished by their sensitivity to the
prepayment risk of the underlying collateral.
UMBS-eligible collateral for REMICs with either enterprise
How is REMIC composition changing?
Pre-June 2019 Today
REMIC
Mega REMIC
Supers
Trust Trust
REMIC
MBS REMIC
REMIC REMIC
UMBS REMIC
Trust Trust Fannie Mae Trust Trust
All
Freddie Mac
REMIC
PC REMIC
REMIC REMIC
UMBS REMIC
REMIC
Trust Trust Trust Trust
REMIC
Giant REMIC
Supers
Trust Trust
Basics of Structured Transactions 5What collateral is eligible to be delivered into a REMIC?
REMIC collateral Re-REMIC collateral
• All 55-day UMBS and Supers: • All 55-day REMIC classes issued by either agency
• 30-year CL/ZL that at original issuance were 100% backed by
• 20-year CT/ZT UMBS Prefixes.*
• 15-year CI/ZI • All 45-day REMIC classes issued by either Agency
• 10-year CN/ZN that at original issuance were 100% backed (at all
• 45-day PCs and Giants that have been exchanged levels) by 45-day UMBS-eligible PCs and Giants
for 55-day UMBS and Supers. that were UMBS-eligible.*
• Unexchanged 45-day UMBS-eligible
PCs and Giants. * At all levels for multiple-layer re-REMICs
Types of Pay Classes
Sequential Pay Classes (SEQ)
SEQs are the most basic classes within a REMIC structure. The principal on these classes is retired
sequentially. That is, one class begins to receive principal payments from the underlying securities only
after the principal on any previous class has been completely paid off and retired. While the A-class
principal is paying down, B- and C-class holders receive monthly interest payments at the pass-through
rate on their UPB. Changes in the average life of the class may affect the yield-to-maturity of the bond.
The term “average life” represents the average amount of time that each principal dollar is expected to
be outstanding.
SEQ: Faster-than-expected prepay speeds SEQ: Slower-than-expected prepay speeds
The principal is retired earlier than expected, The principal is retired later than expected,
shortening the average life of the class. lengthening the average life of the class. Securities
purchased at a discount will produce a lower
yield-to-maturity than anticipated at pricing.
Planned Amortization Classes (PACs)
PACs are designed to produce more stable cash flow by directing prepayments from the underlying
mortgage-related collateral to other classes, called companion or support classes. The PAC investor is
scheduled to receive fixed principal payments (the PAC “schedule”) over a predetermined period of time
(the PAC “window”) through a range of prepayment scenarios (the PAC “band”). The schedule will be met
only if the underlying mortgage-related collateral prepays at a constant rate within the range assumed for
Basics of Structured Transactions 6the structuring of the PAC. The initial or “stated” PAC band, principal payment schedule, and PAC window
are set out in the prospectus or prospectus supplement. The underlying mortgage-related collateral
is not likely to prepay at a constant rate within the PAC band. The range of prepayment speeds that
will, in fact, preserve the principal payment schedule may change from month to month. The range of
prepayment speeds that will maintain the principal payment schedule at any given time is the “effective
band.” The effective band changes because of the impact of prepayments on the support classes and on
the amount of underlying mortgage-related collateral available to produce principal cash flow.
The effective band is more important to investors than the stated band because it gives them an idea
of the actual range of prepayment speeds that will protect the schedule. Because PAC classes have less
cash flow variability, their average lives and yields-to-maturity are more stable than other REMIC types.
They are priced at a lower yield than the less stable REMIC classes but have similar average lives. In
addition, all other things being equal, a PAC with a wide band should be priced to yield less than a PAC
with a narrower band.
PAC: Faster-than-expected prepay speeds PAC: Slower-than-expected prepay speeds
Potential for complete elimination of the Possibly insufficient cash flow to meet the PAC’s
supporting classes, resulting in a “busted” PAC. schedule, resulting in an extension of the average
A busted PAC exposes the investor to the same life of the class and a negative effect on the
yield fluctuations as a SEQ investor. investor’s yield.
Targeted Amortization Classes (TACs)
TACs pay a “targeted” principal payment schedule at a single, constant prepayment speed. As long as the
underlying securities do not prepay at a slow rate, the schedule will be met. TACs may provide protection
against increasing prepayments and early retirement of the investment (“call” or “contraction” risk). In
contrast, PACs offer investors both call and extension protection. In some cases, if prepayments increase,
excess cash flow will be paid to support classes, and the TAC will pay principal according to the schedule
given in the prospectus or prospectus supplement. If prepayments are slow, the average life of the TAC
will extend, because there will be insufficient funds available to meet the principal payment schedule.
TACs are usually found in REMIC transactions that have PAC classes, and they may act as support classes.
The actual behavior of a TAC class depends on the amount and structure of the support classes and
whether or not PACs are present. The support classes absorb the cash flow variability redistributed from
both the PAC and TAC classes, while the TAC serves to absorb some of the cash flow variability directed
away from PAC classes.
TAC investors can expect higher yields than PAC investors because TACs have more cash flow uncertainty
and greater extension risk. TACs may be priced to yield less than SEQs because they may have more
stable cash flow.
Basics of Structured Transactions 7Accrual Classes (Z)
In an accrual class, or Z class, investors receive no cash flow from the security until certain other classes
are paid off. Unlike other classes that pay interest each month, interest that would have been paid to
the Z class is added to its principal balance until the applicable prior classes have been paid off. Over
time, the balance grows, and the interest earned (but not paid) is calculated on this increasing balance.
Once the prior classes have been paid off, the Z class becomes an interest-paying amortizing class that
pays down like a sequential pay class. The Z classes are often the last regular interest class in a REMIC
transaction and may have long average lives.
Interest-Only and Principal-Only Classes (IO/PO)
Each class receives a portion of the monthly principal or interest payments from the underlying monthly-
related collateral by stripping apart the principal and interest cash flow streams. The underlying
mortgage-related collateral’s scheduled principal amortization and prepayments go to the principal-only
(PO) class. The interest cash flow goes to the interest-only (IO) class.
IO/PO: Faster-than-expected prepay speeds IO/PO: Slower-than-expected prepay speeds
Potential negative effect on the yield of an IO class. IO classes Potential negative effect on yield of a PO class.
will produce cash flow to the investor only if the underlying
mortgage-related collateral has principal outstanding on which
to base an interest calculation. So in some cases, the investor
may receive less cash back than invested, resulting in actual loss.
Floating-Rate and Inverse Floating-Rate Classes (FLT/INV)
A floating-rate class (also called a “floater”) is structured so that the coupon rate payable to the investor
adjusts periodically (usually monthly) by adding a certain amount (the “spread”) to a benchmark index
(the “index”), subject to a lifetime maximum coupon (the “cap”). Indices include the one-month London
Interbank Offered Rate (LIBOR),2 a 30-day Average SOFR,3 and others.
Inverse floating-rate classes (“inverse floaters”) have coupon rates that periodically adjust in the opposite
direction of the index. The coupon payable often is derived by subtracting a calculated amount from a
given lifetime cap:
coupon lifetime cap – (multiplier x index) = coupon payable
2
Fannie Mae offers SOFR-indexed Collateralized Mortgage Obligations (CMOs) and ceased issuing new LIBOR-indexed CMOs in 2020.
3
The CMO program will transition from the 30-day Average SOFR to a Term SOFR rate at Fannie Mae’s discretion at a later date as soon as the Term SOFR rate
can be operationalized and is administratively feasible.
Basics of Structured Transactions 8The yield of any floater or inverse floater is sensitive to the rate of prepayments as well as the level of
the applicable index, particularly if the coupon fluctuates as a multiple of the index (so-called “super
floaters”). Low levels of the index will reduce the yield of a floating-rate class, and the interest rate cap will
limit the investor’s yield when the level of the index is high. Because the rate of interest paid on an inverse
floating-rate class often varies inversely with a multiple of the index, any change in the index may have an
exaggerated effect on the yield. High levels of the index will significantly lower the yield because its interest
rate can fall to 0%.
Moreover, changes in the level of the index may not correlate with changes in prevailing mortgage interest
rates. Some indices used for floating-rate and inverse floating-rate classes are more sensitive to fluctuations
in short-term rates than others. For example, LIBOR is very sensitive to short-term rates. Mortgage interest
rates usually respond to longer-term rate movements. It is possible that lower prevailing interest rates,
which might be expected to result in faster prepayments, could occur at the same time as an increase in the
level of the index. Under these high-prepayment/high-index situations, investors in inverse floating-rate
classes may not recoup their initial investment, resulting in an actual loss on the investment. Any REMIC
transaction that contains a floater will also contain an inverse floater tied to the same index.
Basics of Structured Transactions 9Special Types of REMICs
Multifamily REMICs are also known in the marketplace as Alternative Credit Enhancement Securities®
(ACES®), a type of multiclass mortgage-related security in which interest and principal payments from
multifamily mortgages are structured into separately traded securities. The primary source of underlying
collateral is Fannie Mae Delegated Underwriting and Servicing® (DUS®) securities. Structures may include
straightforward pass-through or sequential structures, with fixed-rate classes and/or floater and inverse
floater classes.
Fannie Mae Guaranteed Multifamily Structures™ (GeMS™) REMICs, built upon Fannie Mae’s successful DUS
MBS program, are structured multifamily securities created from multifamily MBS collateral selected by
Fannie Mae Multifamily Capital Markets. GeMS REMICs attract additional capital to multifamily finance
from larger institutional investors who might not find the characteristics of smaller, single-loan DUS MBS
attractive. Structures provide block size, collateral diversity, pricing close to par, and customized cash flows
to meet investor demand. GeMS REMICs are distributed to the marketplace through a dealer syndicate and
trade regularly in the secondary market.
Wisconsin Avenue Securities (WAS) REMICs are Fannie Mae’s senior/subordinated REMIC securities in which
both cash flows and credit losses are passed through to investors. Collateral may include either whole loan
single-family or multifamily mortgages. The senior bonds pass through principal and interest to investors but
do not absorb any credit losses, because they are fully guaranteed by Fannie Mae.
The subordinated bonds receive principal and interest payments as well. However, if there is a loss, they will
absorb credit losses from the collateral by having their balances reduced when losses are realized. Fannie
Mae does not guarantee the subordinated bonds issued as WAS. Therefore, investors in the subordinated
bonds bear credit risk.
Fannie Mae’s Benchmark REMICs™ have several characteristics designed to facilitate improved liquidity
and price transparency for specific REMIC classes issued through this process. These characteristics
include:
• Syndicated dealer distribution for maximum breadth of distribution as well as to encourage active
secondary market support in a number of time zones.
• Inclusion in each benchmark REMIC transaction of a large issue size Guaranteed Final Maturity
Class (GMC) with a stated final maturity.
• Minimum new issue size of $1 billion for each GMC to promote liquidity in these securities.
• Enhanced price transparency features represented by live price quotes on Tradeweb™ for the GMCs
of each benchmark REMIC transaction.
Basics of Structured Transactions 10Basics of Grantor Trusts
A grantor trust is a pass-through vehicle that, like a REMIC, issues separately traded classes. However, grantor trusts are
treated differently than REMICs for federal income tax purposes. Furthermore, unlike a REMIC, the classes cannot have
time tranching; each grantor trust class must receive its proportionate share of cash flow from the underlying collateral
each month until such collateral is paid off. Each holder of a grantor trust certificate is treated for tax purposes as owning
an undivided interest in the underlying collateral. The collateral providing the cash flow for Fannie Mae grantor trusts are
mortgage-related assets, which are specifically described in the trust’s disclosure documents.
Grantor Trust Structure
Fannie Mae has issued grantor trusts backed by various types of collateral, including single-family and multifamily MBS,
REMIC securities, and whole mortgage loans. Similar to MBS and Megas, the grantor trust securitization vehicle combines
the cash flows of the underlying collateral. Fannie Mae grantor trusts are typically issued under the “T” series (for
example, 2005-T1).
Basics of SMBS
Stripped Mortgage-Backed Securities (SMBS) are multiclass, pass-through, grantor trust securities created by “stripping
apart” the principal and interest payments from the underlying mortgage-related collateral into two or more classes of
securities. By stripping apart the principal and interest of an MBS or UMBS pass-through, the resulting securities address
two distinct investment needs. In another type of SMBS transaction, excess servicing is stripped from base servicing on
loans backing Fannie Mae MBS and issued solely as interest-only (IO) bonds.
The PO class receives principal cash flow. The IO class Stripped MBS (SMBS)
receives interest cash flow. Both PO and IO classes can be
PO
recombined. Collateral can include MBS, UMBS, SMBS, and MBS
excess servicing (interest-only deal) for loans in MBS or UMBS.
IO
SMBS appeal to investors with particular hedging needs or interest rate outlooks. They are extremely sensitive to interest
rate changes because of their effect on prepayment speeds. Each investor has different investment needs and a different
risk tolerance, so a potential investor in SMBS should consult financial and legal advisors to determine whether it is a
suitable investment.
SMBS: Faster-than-expected prepay speeds SMBS: Slower-than-expected prepay speeds
Positive effect on PO classes, negative effect on IO classes. Negative effect on the yield and value of PO classes,
In a very fast prepayment environment, the interest positive effect on yield and value of IO classes.
payable on a rapidly declining balance may, over time, be
less than the initial outlay for the investment, resulting in
an actual loss of principal.
Basics of Structured Transactions 11Resources
Getting Started with Structured Transactions
The easiest way to do business with us is to contact us via email. You can contact us to begin the
approval process, receive operational instructions, and get access to our Structured Transactions Portal
to book Megas and Supers online. The tool allows:
Online Megas creation at any time Easy settlement review Submission requests for a
booking on your schedule
ARM MBS Subtypes — A listing of certain key features of adjustable-rate mortgages backing Fannie Mae MBS.
Capital Markets Website — Access current news and announcements, applications, and reference documents.
DUS Disclose® — Provides multifamily MBS, Megas, and REMIC information, loan information, collateral information,
and at-issuance documents (including the Schedule A/Annex A, Base Prospectus, Prospectus Supplement Narrative,
and Pool Statistics) for a specific pool or CUSIP.
DUS Disclose Glossary — Provides definitions of the data elements displayed in the DUS Disclose application.
LIBOR Transition Website — Serves as the centralized location for information, updates, and resources to assist
stakeholders in preparing for the transition from LIBOR to an alternative reference rate. It includes FAQs and a Playbook
for CMOs.
News & Commentaries — Access the latest Capital Markets news, announcements, and commentaries.
PoolTalk® — Provides information about Fannie Mae single-family MBS, UMBS, SMBS, Megas, REMIC, and Grantor Trust
securities. PoolTalk includes current and historical factors, CUSIP numbers, original issue balances, interest rates, issue
and maturity dates, weighted-average coupons, weighted-average maturities, and other data.
PoolTalk Video — Short tutorial providing useful tips on using the platform.
Prefix Glossary — Allows users to access the pool prefixes for each individual issue of Fannie Mae MBS, UMBS,
or Megas securities.
Single-Family MBS Disclosures Guide — Provides definitions and calculations for data elements disclosed for our
Single-Family securities. This document also provides the disclosure file naming convention, publication timing,
and file formats.
Structured Transactions Website — Access the Quick Securities Locator, product information, legal documents, and
other structured transactions resources on the Fannie Mae website.
2022 Holiday Calendar and Disclosure Schedule — Calendar for publication of MBS disclosures.
Basics of Structured Transactions 12Be aware that the multifamily MBS prefixes have corresponding Megas equivalents. For those with Bloomberg, look up
our information on the Structured Transactions Fannie Mae page and browse our securities by searching MTGE Go.
Security Identifier Series Multifamily Megas
Prefix Equivalence
Fannie Mae Megas4
Multifamily Equivalent multifamily
070000 – 070999 MBS prefix Megas prefix
124000 – 124999 2M 2Y
190000 – 190999 H2 X2
303000 – 303999 HA XA
310000 – 310999 MB XB
313000 – 313999 HI XI
323000 – 323999 HL XL
535000 – 535999 AM XM
545000 – 545999 HN XN
555000 – 555999 HR XR
725000 – 725999 HS XS
735000 – 735999 HT XT
745000 – 745999 HX XX
888000 – 890999 HY XY
995000 – 955999 2X YB
AD0000 – AD0999 MG YG
AE0000 – AE0999 2I YH
AL0000 – AL9999 MI YI
BM0000 – BM9999 ML YL
FN0000 – FN9999 MN YN
Fannie Mae Supers5 MS YS
FM0000 – FM9999 MT YT
FP0000 – FP9999 MX YX
FS0000 – FS9999 MY YY
Ginnie Mae Megas 6
100000 – 100299
458000 – 458999
4
As of June 3, 2019, all Fannie Mae Megas (Megas) with TBA prefixes, regardless of issue date, are Supers.
5
Issued as of June 3, 2019.
6
Previously-issued Ginnie Mae Mega pools. This program has since been discontinued.
Contact Us
For additional information or assistance, please call the Fannie Mae Fixed Income Investor Helpline
at 1-800-2FANNIE or email us.
13
© 2021 Fannie Mae
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